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Marco Pantoja, MS, AFC® Quoted in WalletHub

Marco PantojaMarco Pantoja, MS, AFC® was featured in WalletHub’s piece about credit cards for students with bad credit.

What advice do you have for students who find themselves with a bad credit score?

For students who find they have a bad credit score, I’d like to say, good job on taking the first step to improve your credit rating. Your next steps need to consider the following:

  • Review your credit reports at AnnualCreditreport.com a no-obligation, free credit report resource. Review your reports, from each of the big three bureaus (Equifax, Transunion, Experian) for any errors, mistakes, or fraud and, if you find problems, submit a dispute to the credit bureau reporting the issue.
  • Make sure you are paying your bills on-time. Every debt has a due date for payment; don’t be late. I suggest setting up automatic payments to help keep you on track.
  • If you’re using a credit card with a balance that you can’t pay off each month, stop using it for purchases until it’s paid off.
  • Lastly, COVID19 has opened the door to a lot of free financial resources. For Instance: There’s a free financial counseling service available through the Yellow Ribbon Network in partnership with the Association for Financial Counseling & Planning Education (AFCPE®). Also, the book “Surviving Debt” is an excellent, easy to read, straight forward guide on managing any debt-related problems is available for free in digital format during the pandemic

What should students with bad credit look for in a credit card, and how should they use it?

When considering a credit card, shop around, review different credit unions, banks, or credit card company offerings. Read the credit card’s terms of use, or credit card agreement, which outline important information like the APR, how interest is calculated, due dates, fees, and more. The terms are fairly standardized and easily comparable across different credit card options.

Look for the lowest possible APR range, lowest fees, and, if available, higher-paying rewards such as cash back, airline miles, etc.

Avoid any cards with an annual fee. There are plenty of options that don’t charge annual fees, even for people with low/bad credit ratings. Further, annual fees tend to cancel out the gain from rewards.

Treat credit card spending like cash spending and avoid spending more on credit than you have available to pay off with cash. This way, you can pay your card off monthly and avoid interest charges.

Would you recommend that a student with poor credit open a secured credit card account?

Secured credit cards are a great way to help start building or repairing credit. Often when someone has a low credit rating, they have trouble obtaining credit which is required to begin the repair process. A secured credit card reduces the risk for lenders and makes them more likely to provide credit.

That said, before getting any credit card, ensure you have a regular income that can be used to pay the card off each month.

If your sole intent is to use a credit card for building or repairing credit, I suggest not using the card for regular spending, but instead tie it to a recurring bill, such as Netflix or Spotify premium, that can be paid off each month with an already expected automatic payment. This checks all the boxes for responsible credit use: on-time payment, low balance, and regular usage, and avoids the pitfalls of accidentally overspending.

Is there any benefit to having bad credit as a student versus later in life?

The major benefit to having a low credit rating as a student is that it’s an opportunity to learn, grow, and get the credit rating on track early, as they prepare to enter the next stage of life. There also tends to be a lot of resources for students to take advantage of on their college campus, so I suggest checking those out and getting some guidance.

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